U.S. stocks end lower as profit-taking offsets M&A boost

Weaker oil, technology weigh on market; Citigroup gains on upgrade

By

NickGodt

NEW YORK (MarketWatch) -- U.S. stocks closed lower Monday, as investors took profit on recent gains, notably in technology shares, offsetting the boost from an upgrade of Citigroup Inc. and more merger news, including two leveraged buyouts.

A slide in crude oil prices also weighed on energy shares and capped gains for the broader market.

The Dow Jones Industrial Average
DJIA, -0.67%
fell 4 points to 12,441, losing morning gains which had lifted the blue-chip index to a high of 12,490.

Among blue-chips, Citigroup Inc.
C, +0.71%
gained 2.5% to $55.44, after earlier reaching an all-time high of $55.49. Merrill Lynch upgraded the stock to a buy from a neutral, with the broker citing the stock's attractive valuation and saying it has greater confidence the bank will achieve its 2007 earnings target.

After a strong start, gains started fizzling in early afternoon trade. "Part of it is giving back some of the excesses we saw last week from the quadruple witching [of options expirations]," said Todd Clark, director of trading at Nollenberger Capital Partners.

Profit taking of the market's strong gains recently and concerns about holiday sales coming in weak so far also added to the downside, he said.

Normally, investors expect the market to shoot higher in the last few weeks of the year, in what is traditionally called a "Santa Claus" rally.

But the market has already been moving higher without much interruption for the past six months, noted Ken Tower, chief market strategist at CyberTrader.

Still, "I don't see any reason that we won't continue to see gains until the end of the year," he said. "Economic data has been showing conflicting signals of both strength and weakness, but the fact that we're holding onto the strong gains means investors remain confident."

A report that Harrah's Entertainment Inc.
HET, +0.94%
is on the verge of being sold to two private-equity firms was yet another reminder of the powerful liquidity trends that have driven the market higher this year. See full story. Harrah's rose 3.4%.

"All this flurry of merger activity points out that we still have so much cash on the sidelines," said Al Goldman, chief market strategist at AG Edwards.

"When a private equity firm thinks company A or B is undervalued, then investors start thinking that company C or D might also be undervalued," he said.

Biomet Inc.
BMET, +0.00%
meanwhile, agreed to be acquired in a deal valued at $10.9 billion by a private equity group that includes Blackstone Group, Goldman Sachs Capital Partners and Kohlberg Kravis Roberts. The stock, however, fell 1%. See full story.

Elsewhere, Norway's Statoil
STO, -0.58%
said it has agreed to buy the oil and natural-gas division of Norsk Hydro
NHY, +1.36%
in a deal that will create the world's largest offshore operator. Statoil fell 3.2% while Norsk Hydro jumped 19%. See full story.

Technology shares were also in focus, as investors awaited the release of earnings from Oracle Corp.
ORCL, -0.92%
after the close of trading. Oracle rose 1.3%.

According to Goldman, the market can continue rising through year end, although the momentum may somewhat be fading.

"This market has been up, up and away since July so we've already used up a lot of energy," Goldman said. "My feeling is that the trend remains higher but I think the year-end rally will be somewhat muted."

On the broader market, trading volume was 1.5 billion at the New York Stock Exchange and 1.9 billion on the Nasdaq.

Declining issues outpaced gainers 21 to 11 on the Big Board and by 20 to 9 on the Nasdaq.

Meanwhile, with a light economic calendar on Monday, investors had no reason to review ongoing perceptions that the economy is headed towards a soft landing, with inflation pressures muted enough to allow the Federal Reserve to cut interest rates next year if necessary, said AG Edwards' Goldman.

News that homebuilders were a bit more pessimistic about their market in December, while being more optimistic over the next six months, had little impact on trade. See full story.

Other markets

The dollar fell fractionally against the euro and was down 0.1% against the yen after news that the current account deficit widened to $225.6 billion in the third quarter from $217.1 billion in the second quarter. The report was in line with economists expectations. See full story.

Crude oil fell 1.22 cents, or 2%, to close at $62.21 a barrel amid forecasts for warmer weather across the Eastern U.S. See full story.

U.S. Treasurys finished slightly higher as investors await key inflation and housing data later this week. The benchmark 10-year Treasury bond gained 2/32 to close at 100 9/32, yielding 4.590%. See full story.

Stock movers

Dell Inc.
DELL
fell 0.5%. Late Friday, the company said that it has received a letter from Nasdaq indicating it's not in compliance with continued listing requirements due to the delay in filing its third-quarter results.

Time Warner Inc.
TWX, -0.28%
rose 0.3% after media reports said that three executives plan to quit the company as part of a reorganization due to be made public this week.

Shares in Imax Corp.
IMAX, -1.29%
dropped 9% after the company said late Friday that it has determined a sale or merger would not enhance shareholder value and it will instead focus on growth.

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